JCL Blog

Well it has been a year and this is my 272nd post. I set out to write a blog entry every day and even though I came up a few short, I have enjoyed organizing my thoughts and working on my writing in 2010.

Thinking about why I do what I do, or what I plan to do in the future is unavoidable (for me anyway) as the calendar changes to a new year. The blog posts I wrote this year were adequate notes to myself about what I was thinking at the time, and the fact that 4,000 other people found my posts interesting enough to read is flattering.

So what to do in 2011? I have no plans to become a journalist, so I am not looking for a scoop or to break a story. I do think I could put more effort into some bigger writing pieces that further organize my thinking into actual arguments. So in the weeks ahead I am going to pick a few main themes and start to develop them into longer essays that argue a particular point.

Here are some possible subjects based on the number of entries I made this year organized into broad categories:

Tech Marketing (113 entries): I write a lot about this because my company helps large tech companies with sales and marketing. I think the changing role of the salesperson is worth spending time thinking about with Google and Facebook on one end of the spectrum because they really have no salespeople, and Salesforce.com on the other end spending 50% of revenue on salespeople. I don't know how this is going to work out but it sure will be interesting to watch.

New Media (51 entries): My second most written about topic is new media. To me New Media is the decline of the newspaper, publishing, and TV we grew up with and the rise of blogging, micro blogging, social media, and streaming media over the Internet. We live in a very interesting time and the creative destruction of this sector is one of the things that makes it so interesting.

Politics (47 entries): Next in line is politics - mostly in the US, but invariably overlapping with the rise of China as a world power. The big question of course is whether or not the US will stay on top and how many wars will we start as we struggle with our identity.

Economics (44 entries): Finally economics. In the world I want to live in, those that create the most value get the most rewards. It does not take long to see that right now getting rewarded is often disconnected from value creation. Will my pollyannaish view of the world find its way into reality, or will Goldman Sachs continue to gobble up everything for themselves?

There is one other subject that I find very interesting and that weaves throughout all of this: demographics. We often define people in groups and evaluate the relationships between the groups based on our understanding of the average within that group. This tendency prevents us from seeing the real picture. The growth rate of a nation's GDP or even the GDP per capita does not tell us very much. The unemployment rate in the US is around 10% -- but some sectors cannot find enough workers and others have 25% unemployment. If you are interested in this subject, read this from Foreign Affairs. Sure there are well over a billion people in China, but half of them are subsistence farmers who do not participate in the economy.

I am looking forward to digging in on these topics during 2011. As always, your comments and thoughts are appreciated.

The competitor in all of us wants to win, and China failing would be one way to accomplish that. Despite this, I still think a failure in China would be bad for everyone. Certainly it would be bad for the Chinese, but here are a few reasons why it would be bad for those of us in the technology industry:

IP Theft. The work that the Chinese government is just now starting to do on piracy and IP theft will be the first thing abandoned if things turn for the worst.

Aggressive Cyber Behavior: The Chinese government is already allowing or maybe even sponsoring efforts to compromise computer networks in the US. A stable and prosperous China will give us the chance to address this diplomatically.

Nationalization: Fear of a Chinese economic collapse could drive nationalist factions inside China to take control of foreign investments in China with government support.

Loss of a Market: While there is sufficient evidence that China wants the domestic consumer market to be served mostly by domestic companies, there will always be opportunities for US companies to benefit from a rising China. A declining China would remove the opportunity for either domestic or foreign technology companies.

So we want China to continue to succeed in raising itself up in the world economy. We absolutely want to stay ahead by making ourselves more competitive. James Chanos has some good arguments about why China may be in trouble. Let's hope he is wrong this time.

Often these days I find myself in the situation of explaining grown up things to my middle school aged daughters. Now that we are beyond the delicate issue of procreation, long considered by me as the highest hurdle, I realize sex was a chip shot when compared to explaining politics and the media.

Today's opt out fiasco is a great example. I challenge anyone to defend a national call for citizen action that intentionally makes the job of protecting us from suicidal terrorists more difficult. If you think you are up to the task -- try your arguments out on a room full of 7th graders.

Yes, we all know that many security measures are more show than anything else, but is it rational to try to mobilize the people of our nation against the TSA? Like everyone else I am crossing my fingers that the crazy anti Americans don't figure out how to exploit this event. If they do, our hysterical media mob will have one more reason to think about their real responsibilities. (But they will probably blame the TSA anyway).

Two weeks ago the Chinese decided that Americans were so lame that they could drive a submarine up to Los Angeles and shoot off an ICBM. We were either too embarrassed, or too incompetent to do anything about it -- or maybe we put all of our effort into burying the story. Either way, when North Korea saw that the Chinese were right, they decided to fire artillery at a South Korean positions.

If anyone out there has any suggestions about how I can explain to my kids that our leaders are actually trying to do the right thing -- I am all ears.

Sometime during World War II the large centrally controlled organization started to be undermined by the rise of smaller autonomous actors. While the Americans and the Russians are still arguing over who won the war, everyone agrees that the Germans and the Japanese lost. And they were defeated by a scattered array of small semi autonomous units from an informally coordinated group of Allies. D day and Hiroshima were big institutional operations for sure, but the Allies made it happen, and the coordination was minimal or ineffective.

Ever since then the large organizations has been on the decline. The world was re-ordered and marshaling the resources of an enterprise has been in rapid evolution from centralized to decentralized.

I bring this up now because evidence of this evolution is presented to us every day. From our ineptitude in every war since WW II, to our inability to manage healthcare cost or quality, to the steady decline in the effectiveness of our education system, or our failure to regulate the financial markets and the protection of the environment, top down administration on a large scale is failing and doing so quite spectacularly.

I have a hard time imagining that China can be exempt from this trend away from large centralized institutions. One significant contributor to their demise is their ability to deceive themselves about reality. I don't know about Hitler, but the Japanese Emperor clearly was not getting accurate information towards the end of the war. Later, the fall of the USSR was sudden and dramatic because those in power were deceiving the public and probably themselves too. It would be interesting to look into how well China is doing in assessing the effectiveness of its policies. When in complete control of the information, changing the results reported is often easier than changing the actual outcomes.

While reading the article, some roads converged in my technology imagination, mostly in the areas of labor arbitrage, automation, and customer service. The effects of these changes are going to be felt slowly over some time -- but they will be significant.

Labor Arbitrage

We are a decade into the Internet enabled off-shoring movement fueled mostly by low cost labor. Technology innovations only happen when the innovation is ten times better. Offshore labor does not have to be 1/10th the onshore cost, but it needs to be at about a third in order to work. If we are paying $9 per hour onshore for something that can be done for $3 per hour offshore -- the inefficiency of distance and the added cost of travel and/or transport can be overcome. If onshore and offshore labor rates converge, off-shoring will become less compelling. This convergence can happen by offshore labor rates rising as competition for workers and living standards are raised in offshore markets, or as onshore labor rates fall. Wait, how can onshore labor rates fall? Through automation.

Automation

Everywhere we look we see automation. Cars are still being built in this country because robots do most of the work. We see the combination of automation and self service every time we go to the bank machine or the grocery store. Google signs up customers without any salespeople -- which is automation displacing labor in yet another way. The IBM Watson project may seem too theoretical to start displacing humans, but as the NY Times piece points out, the first application may be in the call center. Giving the computer the job of answering customers complex questions. Just like on the manufacturing line, the bank machine, or the grocery store, the computer does not have to answer all of the questions, just a good percentage. When the human's job becomes handling the extreme exception and managing the machine -- the skills required and the associated pay are each increased significantly. At the end of this road lies a customer service capability for companies who have never operated in that mode.

Customer Service

Search for "Google Lack Customer Service" and you can read for days about how Google just does not do it. This is a cause for relief by some of Google's more customer centric competitors. When IBM delivers to Google an engineering driven answer to this deficiency it will be as big as any significant change in an ecosystem. Kill all of the wolves and the elk population goes through the roof. Google is not the only engineering driven company that will benefit. HTC and many of the other sophisticated OEMs, will be able to accelerate their evolution from manufacturer for others to full competitor. The ecosystem will never be the same.

Earlier this year I heard a presentation by Jaron Lanier where he gave the low cost labor countries like India, China, and the Philippines 20 years to get up the education ladder far enough to be safe from the flood caused by automation. Could be 20, I would guess 10.

Me and Google. That’s right – I am pulling out of China. Ok, we have no operations there and we have no customers there and… well we really had no plans of ever being there. So, why am I pulling out? As John Dvorak says: “This is all PR”. I am just hoping that someone will find this post and rescue my readership numbers and rocket me into the stratosphere. After all, I did not get picked by Leo Laporte or Stephen Colbert in the Twitter lottery – so this is my newest strategy.

You see, GoDaddy did it. They pulled out of China with Google. They don’t have any more business there than I do. But I am just lovin’ Danica Patrick and I will do anything she does. She doesn’t have anything to do with the internet, other than being fast, (actually I don’t really know that). But Bob Parsons is a great marketer and so I am with Danica and Bob and I am pulling out of China.

Danica will tell you that in car racing drafting behind the leader will save you fuel and get you in a good position to win later. This is a strategy employed in marketing too. Draft behind the big stories and boost your numbers. When I saw GoDaddy drafting behind Google my first thought was – hey, that’s pretty tricky – do you think anyone will go for that? Here is a great time to use that word “clever” when it is really not a compliment.

Really though, this brings up what I call the “Pay or Be Paid” issue. Would it be better to get paid to speak to people who want to hear you, or pay to speak to people who have never heard of you? … or sneak in the back door and jump on stage and say “Hey, I want to speak too!”

Until I saw this article I thought low cost goods made from pirated designs with super cheap labor in China entered our markets through those shipping containers we see stacked everywhere. Now it seems Chinese companies are invading with illegal immigrants and copying products locally and undercutting prices -- all without having to put a Made in China label on the products.

Sound unbelievable? -- check out this story in the Financial Times. Sure it is just Italy now, but who is next?

We give China $20 Billion in cash every month (our trade surplus). Other countries give China cash too. This is a big problem for China -- because they are running out of places to put the money. They put some in US Treasuries -- but we pay essentially zero interest, and they already have a trillion dollars of our debt. They put a great deal into domestic projects, but there is a limit to that (inflation). They put another small mountain of cash into pre-purchasing natural resources like oil and copper from other countries, until those prices go up too much and everyone screams.

Now they are building infrastructure projects in other countries as reported in the NY Times.

It should be a priority for us to figure out how to stop giving them all this cash.

The recent tension between China and Google has focussed our attention on the contrast between these two organizations. However, anyone capable of suspending their own perspective will find some similarities too. Here are a few I can think of:

Long Term Perspective

Both organizations take the long term perspective. China is 30 years into a plan that spans a century or more and Google is a decade into theirs without any sign of letting up. Both organizations focus intently on stability in leadership, China with a one party system and carefully crafted power transitions, and Google with a two tiered corporate governance structure that insulates the leadership from typical wall street pressures.

Driven by Engineering Minds and Data Decisions

Google is famous for collecting data on everything and using it to make better decisions. They believe there is a better way to do just about everything and the new ways will be discovered by those that are willing to try new ideas and measure everything. China is a student of their own experiences and everyone else's. They know good ideas are out there and are willing to bring them home and try them out. China measures everything too.

Growth Attracts Attention and Invites Compromises

Both organizations are experiencing very rapid growth and as a result have attracted the attention of the world. Everyone else wants to be around these growing entities and are often times willing to make significant sacrifices in order to do so. Many companies have compromised their values in order to do business in China. Many have exposed their intellectual property in order to gain access to a market that contains 25% of the world's population. Similarly, individuals and companies alike have turned large volumes of data over to Google. This data about users and their behaviors, that used to be considered private, is Google's biggest asset.

Willing to Accept Collateral Damage

China and Google both know that the growth and change they are navigating through will be painful. China jails its dissidents, and Google has disrupted industries resulting in significant employment dislocation. The leaders of both organizations are able to maintain their focus on their plans without being distracted by the human factors. It may be unfair to equate China's human rights abuses to Google's impact on the newspaper business but the point here is that neither leadership team shows any sign of diverting from their mission because a few lives are impacted.

The Stakes are Higher for China

So far China has raised the standard of living for 500 million people to above the poverty line. The largest and fastest advancement by any nation ever. The mind numbing volume and significance of the choices the leaders of China have had to make to bring about the rise of their nation is awe inspiring. Each misstep has had very real consequences -- in extreme cases measured in the loss of life due to starvation or unrest. The ascension to power and prosperity in our own country pales in comparison. On this scale the stakes at Google really don't register at all.

Motto or not, Google is stunned when it finds us worried they will do evil things with our data. The Chinese leadership is less naieve about the way the world reacts to its policies. They step in a careful and calculated way through their priorities, and work to influence our view of them. They know we view them through the lens of our perspective and so they study us to better understand how we see the world. Someday they will address the things that bother us including piracy and human rights. Until then, we should spend more time studying China so we can pursue mutual interests and compete more effectively.

And the spying and cyber attacks...what about them? I bet the Chinese have a long way to go to catch up our our level of sophistication in these areas. The CIA and the NSA are tough acts to follow.

Two of my favorite subjects, Google and China, collided in a big way yesterday. With the media industry all lit up over the event, I doubt I can add much new commentary except to say that this is going to be very interesting and 30 days from now it is going to look much different than today.

I may be able to add a little value by directing traffic to the best coverage I have seen. I will leave the New York Times and Wall Street Journal off of my list because I am sure everyone has already read those articles.

First: I have to cite Mark Anderson's newsletter posting on January 4th as not only timely but a bright light on our blindness to China's nature. He writes a paid newsletter and I would encourage anyone interested in technology to subscribe. You can learn more at Strategic News Service. Here is a quote from his China piece:

In summary, China should not be treated as though it were just another fast-growing free-market nation, with inevitable road bumps making things a bit uncomfortable; it isn’t. China is a top-down, completely controlled system, running on a zero-sum economic model made to produce one winner, and many losers.

Second: The Economist thinks Google may not be doing the right thing. I think those in Europe prefer things to move a little more slowly -- so this is not that surprising. The Brits have been active in China for a lot longer than we have -- so I am sure they have a point.

Third: Robert Scoble has a good piece on our attraction to China and why we often compromise our standards in order to do business there.

So I hope our eyes are open and we see China as it is -- and we must resist the urge to think of China as a reflection of ourselves. China has no interest in being like us, but they are perfectly willing to let us think they are.

In the past 30 years the Chinese economic miracle has raised 500 million people from below the poverty line to above it. Our economy is stuck in the mud and theirs is seemingly growing at whatever number they want. There is a very good article in the New York Times outlining how China's growing economy is impacting its domestic markets. The article states that the average annual income in the cities in China is still under $3,000, and under $1,000 in the rural areas. Despite this, the Chinese now buy more cars, more home appliances and bigger TVs than we do here in the US.

The China story is truly amazing -- after all, they have not had a losing year since 1976 and in those three decades, only two years had GDP growth of under 5%. In 1976 China's economy was 5% the size of ours, now it is 50%. Economists may have differing opinions on many things, but they all agree that markets have cycles. Thirty years without an economic reset in China does imply that one of these days, their economy is going to have a bad patch. When it happens, we will be able to say that even the Chinese markets reset every once in a while, and some people will feel better about themselves. I would argue that it is not in our best interest for the following three reasons:

Life or Death

The delicate balance of the Chinese economy still has more than 600 million people living very close to starvation. China is extremely focussed on growth because without it millions of people starve. And if that is not enough motivation, with starvation comes political unrest -- so a downturn in China would also start a revolution intent on replacing the government. With the recent build up in Chinese military capability, such a change would include the current government turning on its own people -- also devastating.

Keep us Honest

Honesty is in short supply in our country these days, but it would be even less so without a strong competitor. On some days it is nice to be alone on top of the world economic heap, but I would argue that since the fall of the Berlin Wall, we have been without competition, and lack of competition gives us nothing to focus on but gaming our own system. The last twenty years has seen our smartest math and science minds put to use creating financial products on Wall Street, and engineering quadruple razor blades we will never need. A growing and vibrant China motivates us to fix our own country.

Share the Load

A successful China may not get around to helping other nations for fifty years. Just taking care of themselves however, will free the rest of the developed nations to work to solve the other terrible problems facing our world. Who knows, if China continues on its path to prosperity they may even decide they have a responsibility to help others. And we could use all of the help we can get.

So even though we may feel badly that the Chinese are now buying all of the Hummers -- hey, they even bought that company -- and soon will be buying many more of our assets, I would encourage you to join me in pulling for China to succeed. If they do we will all be better off.